SPE DISTINGUISHED LECTURER SERIESis funded principally

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SPE FOUNDATIONThe Society gratefully acknowledges

those companies that support the programby allowing their professionals

to participate as Lecturers.

And special thanks to The American Institute of Mining, Metallurgical,and Petroleum Engineers (AIME) for their contribution to the program.

My SPE Distinguished Lecture tour

SPE DISTINGUISHED LECTUREThe End of Stranded Gas:

The Emergence of the Gas to Products OptionDr. Theo H FleischDistinguished Advisor, BP AmericaHouston, TX 77079

Outline

• Problem with gas: stranded or associated

• Gas monetization options

• The case for Gas To Products (GTP)

− What is GTP and GTL?

− Products and markets

− Technologies

− Global projects

− Economic viability

− BP’s role in GTP

• The future of GTP

Gas resources: plentiful but…

• Gas Reserves (2005) = 6500TCF (185TCM); “under-explored”

• R/P ratio: ~70 years (versus oil at ~35)

• About 40% of gas (2500TCF) is stranded

− (Russia, Qatar, Australia, Alaska, …)

− Solution: conversion of gas into transportable liquid

• Associated gas: re-injected or flared

Flaring of associated gas (in red; 15 bcfd?)

Remote and flared gas: an inexpensive feedstock

GTP Value creation:

Feedstock: $0 to 1.50/MMBTU

Products: $10/MMBTU

(diesel at $50 oil or methanol at $200/t)

GTP: Transportable, high value products

Greater netback to the feedstock

New markets for gas

Remote Gas Monetization Options

PIPELINE PUSHING THE LIMITS ($25B)

LNG TECHNOLOGY OF CHOICE TODAY

GTL (FT, Fischer-Tropsch) BIRTH OF A NEW INDUSTRY

METHANOL TRANSITION FROM CHEMICAL TO FUEL

DME “SYN-LPG”, ASIAN TIGER AWAKENS

CNG A NICHE FOR SMALL & SHORT (EnerSea)

GAS BY WIRE DC TRANSMISSION COST DECREASING

HYDRATES MOVING A LOT OF WATER

GAS BY BAG A VERY SMALL NICHE

Gas by Bag

Outline

• Problem with gas: stranded or associated

• Gas monetization options

• The case for Gas To Products (GTP)

− What is GTP, GTL, GTC, etc?

− Products and markets

− Technologies

− Global projects

− Economic viability

• The future of GTP

GTP: Inclusive term for all chemical gas conversion options (today: 20 bcf/d)

FT Upgrading

Diesel

Naphtha

Syn-crude

Methanol and DMEGasoline, Hydrogen

Olefins

Ammonia and others

GTL PROCESS

GTC or GTFC TECHNOLOGIES

Reforming

MethaneCH4

Synthesis Gas

CO + H2

PREMIUM PRODUCTS

O2

H2O

GTL: Gas to Liquids (FT- Fischer Tropsch)

GTC: Gas to Chemicals

GTFC: Gas to Fuels and Chemicals

Industry moves from GTP to “XTP”

Conversion Technologies

FT Upgrading

Diesel

Naphtha

Syn-crude

Methanol and DMEGasoline, Hydrogen

Olefins

Ammonia and others

GTL PROCESS

GTC or GTFC TECHNOLOGIES

Reforming

MethaneCoal

PetcokeBiomass

Synthesis Gas

CO + H2

Gasification/UCG“Clean Coal Technologies”

GTP offers large markets for gas

1100

140Methanol to Olefins

Very largePower (methanol, hydrogen)

130Ammonia

215Methanol to DME (LPG)

900Methanol as/to gasoline

34Methanol, chemical

3800Synthetic “crude”

150 (actual size)Comparison: LNG

Product market sizeMMTPA

Target Products

GTL-FT Diesel

Some simple conversion chemistry

Dimethyl-ether(DME)

Methanol

Hydrogen Carbon Oxygen

“Diesel”

About DME

Overview• Easily made from methanol

• Physical properties: like LPG

• Clean bill of health

• Multi-purpose fuel

− LPG extender (commercial)

− Ultimate Diesel fuel (fleet demos)

− Power production (CCGT)

− Other: olefins, hydrogen, gasoline

• International DME Association (IDA)

• www.aboutdme.org

Methanol/DME in China

Shandong JiutaiChemical Industry30,000 T/yr－ 2003 100,000 T/yr－2005

Luthianhua Group Inc, Sichuan10,000 T/y – 2003 110,000 T/y – 2006

Shanghai Coking/HuayiCompany5000 T/y – Apr.2006

Xinao Group10,000 T/y – Jan. 2006

Yuannan JiehuaChem. Group

150,000 T/y – 2007Under construction

Shenhua Ningxia Coal Industry Group

210,000 T/y -2007 To 830,000 T/y - 2008

Yankuang Group200,000 T/y - 2009

Shandong Jiutai Chemical industry 1 million T/y - 2009 Xinao Group400,000 T/y - under construction Mengda Group1 million T/y – under planning Luthianhua Group200,000 T/y – under planningChina Nat. Coal/Sinopec3,000,000 T/y – 2010Yigao Chemical Co20,000 T/yr– Aug 2006 wet commiss.

Shanxi Lanhua Sci--Tech100,000 T/y – under construction, 2007 (Jincheng)Lanhu Group1,000,000 T/Y-under planning

Hubei Zhongjie Petrochem. Group 100,000 T/y – under const. - 2007

Hubei Biocause Pharmaceutical100,000 T/y – under planning -2007

Memo: This is a work in progress, Ron Sills, Sept. 19, 2006

YearThousands

MT/yr2004 402005 1552006 2752007 9352008 15552009 41552010 8355

2020: 60/30

1 MT DME requires 1.4 MT methanol

Automotive fuel demand scenario to 2100

Energy Demand （x1018 J ）

2000 2020 2040 2060 2080 2100

Diesel / GasolineFrom oil

Electricity

GasHydrogen

Synthetic fuelsand biofuels

Liquid Fuels

GaseousFuels300

250

200BP

150

100

50

0

Data source：WEC; with modificationSource: IEA

The dangers of technical prediction

• Nuclear-powered vacuum cleaners will probably be a reality in 10 years -Alex Lewyt, president of vacuum cleaner company Lewyt Corp., 1955

• There is no reason anyone would want a computer in their home -Ken Olson, president of Digital Equipment Corp. 1977

• Drill for oil? You mean drill into the ground to try and find oil?You're crazy. - Drillers who Edwin L. Drake tried to enlist in 1859

• Radio has no future. Heavier-than-air flying machines are impossible. X-rays will prove to be a hoax - William Thomson, Lord Kelvin, 1899

Role of GTP in host countries

• Gas resource holder increasingly value GTP

− GTP: Requirement for gas access and country entry

− Algeria: Tinrhert GTL bid

− Qatar: “GTL Capital of the World”

− Trinidad: “GTP Capital of the World”

− No more flaring policies

• Key advantages

− Diversity of products and markets

− Country industrialization (investments, jobs)

− Acceleration of gas monetization

− New “unconstrained” markets for gas

GTL: large unconstrained markets

0.6%

8%

GTL (and some other GTP) markets are virtually unconstrained

GTP is an excellent complement to LNG

Gas resource consideration

• LNG: massive scale; multiple trains

− >10 tcf resource requirement

• GTP: massive scale AND smaller scale

− World scale methanol/DME plant: 150mmscfd, <2 tcf

− World scale GTL plant: 300mmscfd, ~3tcf

Summary: Products and markets

• XTP offers a broad product portfolio

− Improved conventional fuels (diesel, gasoline, jet fuel, etc)

− New “designer” fuels and fuel additives (methanol, DME, hydrogen, ethanol, etc)

− New large volume chemicals (olefins)

• Fuel properties

− Greatly improved performance and emissions

− Preferred (early) applications: blends

• XTP is a must have tool in the tool box

Outline

• Problem with gas: stranded or associated

• Gas monetization options

• The case for Gas To Products (GTP)

− What is GTP and GTL?

− Products and markets

− Technologies

− Global projects

− Economic viability

• The future of GTP

GTL technology challenges

Gas Plant

Reformer FT Plant Upgrading

CH4

O2

CO+H2 (-CH2-)n

ASU NaphthaDiesel

GTL projects: the birth of an industry

SasolChevronNigeria35kbpd

BP“Colombia Condor”

~35kbpd

Sasol“Oryx”

35kbpd (70kd/d train 2)

Shell “Pearl”140kbpd (Nov. 2003)

ExxonMobil160kbpd (July, 2004)

PP: Feb. 2007

ConocoPhillipsSasolChevron

Marathon/SyntroleumPOSTPONED

Heritage Plants Shell Bintulu

PetroSA MossgasTinrhertAlgeria35kbpd

World GTLTrinidad

4kbpd

Many other proposed projects

Methanol/DME projects: transition from chemicals to fuels

Japan DME Ltd3,000 TPD

Iran Methanol 1- 55,000 TPD

Trinidad – (2) 5,000 TPD Atlas

Methanol Holdings

Oman Methanol - 3,000 TPDQatar Methanol - 6,750 TPD

QatarDME Int’l Corp.2,500-4,500 TPD

Nigeria/Eurochem MTO7,500 TPD

Iran DME2500 TPD

China DME Plants2020: 20mmtpa

mostly coal based

Iran/Lurgi MTP2500TPD China Methanol

2020: 60mmtpamostly coal based

MethanexChile DME

Heritage plantMobil MTG

MethanexEgypt DME

Methanol

Methanol for Fuel, Power/OlefinsDME

Memo: Not including <5,000 MTPD methanol plants

Oryx Plant: Pioneer GTL plantInaugurated June 6th 2006

“As we stand here today to celebrate the inauguration of Oryx GTL, we arechanging the world’s energy paradigm with gas-to-liquids (GTL) technology.”- His Excellency Abdullah Bin Hamad Al-Attiyah, Second Deputy Premier,Minister of Energy and Industry, Qatar, and Qatar Petroleum chairman.

Plant Statistics

34,000 bpd capacity

- 24,000 bpd Diesel

- 9,000 bpd Naphtha

- 1,000 bpd LPG

Construction Start – Dec 2003

Project Completion – March2007

Believed to have cost $1.2Billion

Atlas Plant (Trinidad): Pioneer methanol plant

• 5000tpd (160MMscfd); equivalent to 15,000bpd GTL

• Operated by Methanex, BP is 40% equity partner

• World’s largest single train reformer

GTP Economics: summary

• 2000: GTL reached parity with LNG in economic returns

− Robust economics at $20 crude and Capex of $25k/bbl (2000)

− But EPC cost increases: >$50k/bbl (2006)

• 2006: Relative economic viability

− GTL (~$35/bbl), CTL (~$50 - 60/bbl), BTL (~$85/bbl)

− Higher crude prices favor GTP over LNG

• Methanol and DME can be delivered at $5-7/MMBTU and become viable as fuels above $30 crude

− Fuel methanol and DME are commercial realities in China

− Olefin projects underway (new low cost technology)

Important factors for economics

1. Feedstock cost

2. Capital cost

• Location factor

• Boundary conditions

• Inflation

3. Product prices

GTL Cost Trends

0

20

40

60

80

100

‘000

$/bb

l Ins

talle

d C

apac

ity

Mossgas1991

Bintulu1993

Oryx2006

Escravos2009

Pearl2010

Actual Estimated

• Relatively few commercial-scale projects to date

• Significant scope, scale and location-specific differences

• Estimates based on published data

LNG Liquefaction Cost Trends

0

100

200

300

400

500

600

700

1990 1995 2000 2008 2010 2010

Actual Estimated

$/to

nne

Inst

alle

d C

apac

ity

Rec

ently

Sanc

tione

d

New

Bro

wnf

ield

New

Gre

enfie

ld

Drivers :• EPC demand and supply imbalance• Materials and labour costs• Vendors and manufacturing (e.g.

exchangers, turbines, compressors)• LNG shipping and yard availabilities• Increase in schedules

Drivers :• Economies of scale (e.g. liquefaction,

storage & shipping)• Increased competition (e.g. licensors,

contractors, suppliers)• New technology (e.g. cryogenic

pipelines; flexible hoses)

LNG and GTL comparison: boundary conditions

Shell

GTL Plant

Impact of product prices (USA)

US Energy Costs ($/Million BTU)

0123456789

101112131415161718

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Bituminous Coal Lignite Coal Natural Gas Domestic CrudeImported Crude Gasoline Diesel >1%S Resid Fuel Oil

Diesel>Natural gas/LNG>Coal

Liquid fuels >> natural gas

Economics of GTL vs. LNG

Key Issues :• Oil:gas price relationship;

gas capped by coal• LNG capex: plant only or

value chain capex?• Strategic value :

• Revenue diversification• Value added in-country • LNG and GTP

LNG EconomicallyAdvantaged

GTL EconomicallyAdvantaged

Net Present Value

100

80

Oil

Pric

e ($

/bbl

)

60

40

206 8 104

LNG Price ($/mmbtu)

Summary: Pros and cons of GTP

• Large new markets

• Host country appeal

• Premium “designer”products

• Robust economics

• Proven technologies

• Scaleability

• Capital intensive

• Scale-up risks

• Aversion to new products

• Poor efficiencies

PROS CONS

Process carbon efficiencies

Carbon efficiency (%)

Benchmark:

LNG and refineries 85 - 90

GTL today

Goal

75 – 80

~/>85

Methanol/DME today

Goal

80 – 83

85 - 90

The future in GTP

• On-going R&D and value engineering

− lower cost plants

− Higher efficiencies

• Floating applications

− Marinization of GTL FT

− Micro-channel technologies (Velocys, CompactGTL)

• New products from syngas

• Gas refinery

− Integration of different plants

− Further conversion of primary products into consumer products (plastics)

Technology Benchmark: Syntroleum FPSO

310 M

65 M

16,300 bpd GTL150 mm-scfd Gas$1.2b EPC20,150 M2

Integrated Gas Refinery Concept

LNGSyngas Hub PowerPlant

NGLs

Ethane

Methane

NGLExtraction

GTLDiesel

DMEPlastics

PetChemse.g. ATC

IntegrationOptionsCore GTP Offer

FeedgasSupply

Ammonia(Urea)

Methanol(Acetic Acid)

BP GTP Profile

• World class R&D group (~60 people)

• Relationship with Berkeley, Caltech, DICP (~60)

• Broad GTP product portfolio (CR, FT, alcohols,…)

• Atlas methanol plant (with Methanex)

• Portfolio of project options

• Decarbonized fuel projects

• Jan 2007: Transition to XTP

Hydrogen power projects: “DF2” – Carson Refinery

Gasification: C + H20 = CO + H2

Syngas cleanup

Shifting: CO + H2O = CO2 + H2

Separation: CO2 and H2

Summary

• GTP and XTP are here to stay: new options for resource holders

• Oryx and Atlas: pioneer plants for new GTL and methanol/DME business

• Target feedstocks: stranded gas, flares, domestic coal

• Products: high performing, low emitting fuels

• No more stranded gas